April 1, 2023

  • Top investment banks expect Russia to suffer severe economic damage after its invasion of Ukraine in February.
  • But the Russian economy performed better than expected, leading them to revise those forecasts.
  • The following three charts show the resilience of the Russian economy in the six months after the war began.

When President Vladimir Putin’s troops invaded Ukraine in late February, many Wall Street analysts rushed to predict a recession in Russia. After six months, they were forced to revise those forecasts.

In the weeks following the outbreak of war, these dire warnings appear set to become reality.Western allies bring economic sanctions – such as Oil import ban And remove the Russian ruble from the international currency market.

But Russia’s economy has shown great resilience. These three charts show how.

economic growth continues

In March, top investment bank JPMorgan said that Russia’s gross domestic product 35% drop in the second quarter compared to its predecessor. Goldman Sachs predicts its economy will suffer its worst contraction since the collapse of the Soviet Union in the early 1990s.

But in the three months to June 30, Russia’s GDP fell just 4% year-on-year. In fact, its economic growth contracted at an even faster pace in the wake of the coronavirus pandemic, when GDP fell 7.4% in the second quarter of 2020.

Given this, JPMorgan has concluded that the Russian economy has remained stable under the weight of harsh sanctions.

Its strategists said in a recent note that available data “do not suggest a sudden plunge in activity — at least for now.” is consistent with the decline.”

Stronger-than-expected Russian commodity exports, including crude oil, helped support the economy. The country also benefited from strong demand from its own consumers and the Kremlin’s plan to keep unemployment low, according to the IMF.

“Domestic demand is showing some resilience as the impact of sanctions on the domestic financial sector has been contained and the labor market has softened less than expected,” the IMF said in July.

Asian pivot boosts oil exports

Wall Street analysts also predicted that a Western oil import ban would severely hurt Russia, the world’s third-largest oil producer after the United States and Saudi Arabia.

The country’s economy is heavily dependent on energy exports, with oil and gas revenues accounting for 45 percent of its federal budget last year. International Energy Agency.

U.S. Embargo on Russian energy imports March, meanwhile EU agrees to phased ban – Currently affecting 75% of Russia’s oil purchases – in May.

In March, Goldman Sachs said Moscow was unlikely to find other crude trading partners because it was expelled from the country. SWIFT banking system Prevent the Central Bank of Russia from using its foreign exchange reserves.

“To illustrate this point, so far, there have been no reports of China increasing its purchases of Russian crude oil, nor has China increased its Iranian or Venezuelan crude oil imports in recent years,” its analysts said.

But Russia still exports 7.4 million barrels a day, according to data compiled by Bloomberg in July.

India’s purchase of Russian oil played an important role. Its imports rose for five straight months before falling slightly in June. It is still absorbing 1 million barrels a day of Russian oil – a 900% increase from February.

Europe has yet to wean itself off its reliance on Russian crude. The EU still imports 2.8 million barrels a day, according to data compiled by Bloomberg. This is only a 30% drop from 4 million barrels per day in February.

Factory and service sector activity recovers

Wall Street has only seen pain in Russia’s manufacturing and services sectors as Western economic sanctions hit.

Russia’s composite purchasing managers’ index, which tracks trends in two industries, tumbled in the wake of the Ukraine invasion. It slipped to 37.7 in March from 50.8 in February, with a reading above 50 indicating growth and below 50 indicating contraction.

Goldman Sachs strategists said the contraction was “widespread, with sharp declines in the components of output, new orders, and especially new export orders.” They noted that Moscow should prepare for a further slide.

But a few months later, Russia’s composite PMI was back in growth territory.

The index climbed to 44.4 in April, rose above 50 in June and hit 52.2 the previous month. The last reading means Russia’s economic health is booming — a far cry from Wall Street’s doom predictions.

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